If the true costs of fraud are 5-10 basis points, suggesting that we eliminate fraud by replacing that with a 50 basis point drain on the system seems unlikely to succeed.
Most likely that was a mental arithmetic error or he thought that 1 bp = 0.1%, but changing it from 0.5% back to 0.05% back really changes the utility. If your average CC transaction is $100, you're breaking even compared to picking up a nickel. I'd rather get on with my day then stand there waiting for the authorization or picking up a nickel.
I don't know whether those transactions tend to be larger or smaller than average. I'd assume the detection systems are quite good, and crooks start with small charges (gas stations and shoes are what I hear are test spots they use). So they may be pretty close to average sized transactions.
